Who Will Win the Energy Race?

As a result of major transformations in the global energy system that take place over the next decades, renewables and natural gas are the big winners in the race to meet energy demand growth until 2040, write the authors of the World Energy Outlook 2016 report by the International Energy Agency.

“We see clear winners for the next 25 years – natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal,” said Dr Fatih Birol, the IEA's executive director. “But there is no single story about the future of global energy: in practice, government policies will determine where we go from here.”

The authors of the report analyze the ways that the world is rethinking the idea of energy safety after the adoption of the Paris Agreement. The Report presents the overview of how oil, natural gas and coal are adapting to the current market situation, and it gives the forecasts of future risks – such as insufficient investments in the most important energy supplies, etc. The report goes through the individual pledges by countries and analyzes how close their Governments are from meeting them.

A detailed analysis of the pledges made for the Paris Agreement on climate change finds that the era of fossil fuels appears far from over and underscores the challenge of reaching more ambitious climate goals. Still, government policies, as well as cost reductions across the energy sector, enable a doubling of both renewables and of improvements in energy efficiency over the next 25 years. Natural gas continues to expand its role while the shares of coal and oil fall back.

The IEA regularly revises its forecasts for oil demand and extraction. In the report, it discusses whether oil demand had peaked or not. According to the Report, oil extraction by non-OPEC countries is going to go down 6.1 mln barrels per day by 2040.

Global oil demand continues to grow until 2040, mostly because of the lack of easy alternatives to oil in road freight, aviation and petrochemicals. However, oil demand from passenger cars declines even as the number of vehicles doubles in the next 25 years, thanks mainly to improvements in efficiency, but also biofuels and rising ownership of electric cars.

Coal consumption barely grows in the next 25 years, as demand in China starts to fall back thanks to efforts to fight air pollution and diversify the fuel mix. Coal consumption in China peaked in 2013 and is fast losing ground to renewables. Wind and solar power are likely to become the leading sources of energy in China in the nearest future.

The gas market is also changing, with the share of LNG overtaking pipelines and growing to more than half of the global long-distance gas trade, up from a quarter in 2000. In an already well-supplied market, new LNG from Australia, the United States and elsewhere triggers a shift to more competitive markets and changes in contractual terms and pricing.

As for Russia, it is said that the country will manage to maintain high levels of oil extraction for around 5 more years, after which there will be a sharp decline that will reach 20% by 2040. Gas production will however reach the unprecedented 19.2% over the 2015 level by 2040.

The data provided by the IEA is quite comparable with the officially announced plans of the Russian energy sector. According to the revised version of the Prognosis of social and economic development of Russia for 2017-2019, prepared by the Ministry of Economic Development, gas extraction in 2016 will be 637.8 billion cubic meters, and in 2017 the volumes will grow up to 640.5, in 2018 – to 648.3 and in 2019 – to 652 billion cubic meters. At the same time, coal is not giving up its positions either. According to the revised version of the Energy Strategy until 2035, coal production is yet to reach 435 million tons per year.

Concerning RES in Russia, the IEA report states that total generating capacity of RES in the country will grow by 3.9% or by 2 GW and will reach 53 GW by the end of 2021. But it is important to note that big hydro are also included in this category (while in most countries they are no longer regarded as environmentally and economically sound energy solutions). The IEA report says that the main growth of RES capacities in Russia will be provided mainly by big hydro, over 1 GW by the end of 2021.

Solar generation in Russia will grow 7 times by 2021, from 0.1 to 0.7 GW, while wind power generation will grow twice, from 0.1 GW to 0.2 GW. The production of electric energy from RES will grow by 2.7% by the end of 2021, while in China, for example, for the same period of time the growth is expected to be at 60%.

It would be a positive moment, if global energy trends along with unstable oil demand and the global trends of transitioning from fossil fuels would urge Russia to rethink our energy strategy – towards the reduction of the share of fossils and a more solid support of renewables, says Olga Senova, Head of the Russian SocioEcological Union’s Climate Secretariat.